In his recent it’s-time-to-get-serious-on-the-budget speech, President Obama introduced his idea for a debt fail-safe to, in his own words, “hold Washington — and to hold me — accountable and make sure that the debt burden continues to decline.” While budget trigger mechanisms haven’t worked particularly well in the past, there is reason to believe this time — if done right — they could be part of the solution.
The president’s debt fail-safe would mandate cuts to government spending and tax breaks if by 2014 — notably, not until after the election — deficits were not projected to be declining as a share of the economy. To be workable, debt targets and triggers, which the Peterson-Pew Commission on Budget Reform spent the past two years working on, need to be well structured and politically realistic, and they need to come with enforcement mechanisms that are strong enough to push lawmakers to act. A number of ideas could improve the president’s fail-safe proposal:
Start right away. Deficit reduction cannot be delayed until after the election. A budget framework should be put in place this year, with real savings targets starting next year. We have no idea when our creditors will lose faith in the United States, but we should not push this to beyond the election and risk finding out.
Set annual targets. The purpose of a budget target is to lay out a clear fiscal objective, such as balancing the budget, or (as is now more realistic given our debt-swollen starting point) bringing the debt down to a more reasonable share of the economy by the end of the decade. But there also should be yearly measures for getting there, to avoid politicians loading all their promised savings far in the future. Politicians’ promises to make tough choices years from now ring hollow.
Exempt nothing. To be taken seriously, a budgetary target needs to be coupled with triggers, which are basically the teeth that make the target more than an empty political promise. Obama’s proposed trigger would levy cuts on spending and on the credits, deductions and exclusions that clutter the tax code. But it exempts Social Security and Medicare benefits — which is like punishing your kids by denying them dessert, except for candy and ice cream. All programs need to be part of the trigger, which is what will get policymakers to develop a savings proposal on their own terms rather than waiting for the trigger to force their hand.
Shoot high. The president proposed stabilizing the debt by the end of the decade. Not good enough. Obama’s commission on fiscal responsibility proposed saving $4 trillion over the decade; the president countered with proposals to save $2.5 trillion. He should match what his own commission proposed, which would lead to the debt shrinking relative to the economy after 2013.
How should a budget trigger fit into the unfolding debate? An obvious fit is as part of the debt ceiling discussion. The debt ceiling has to be lifted — failing to do so would be catastrophic. Yet, not making changes to the budget situation would be disastrous as well — only the consequences would not be as immediate.
Ideally, we would attach a full budget reform framework, as the Gang of Six (a bipartisan group of senators pushing a comprehensive plan) is working on, to the debt ceiling increase. But time is short; we bump up against the debt ceiling in the coming weeks. Targets and triggers may work as a perfect bridge to the larger plan. However, they will only work if they reflect the political will to make changes, rather than a political punt, and even the best debt fail-safe mechanism needs to include some specific spending cuts upfront to help pave the way.
The Gramm-Rudman budget act failed because the targets became too stringent to be realistic; the Medicare solvency trigger failed because there was never really any intent to fix the program. So while the debt fail-safe may be the perfect starting point to help buy some time, only real policy changes will get the job done.
